Could Supreme Court Decision Lead To Revocation Of CFPB Rules?

Written by Patrick Barnard
on July 02, 2014 No Comments
Categories : Required Reading

15642_supreme_court Could Supreme Court Decision Lead To Revocation Of CFPB Rules? Should President Obama end up being sued by House Republicans over his recess appointments to the Consumer Financial Protection Bureau (CFPB) and National Labor Relations Board in 2012 – actions that were recently ruled ‘invalid’ by the U.S. Supreme Court – it could result in subsequent challenges to the actions that Richard Cordray, director of the CFPB, took during the period he was unofficially at the helm of the consumer watchdog group – including the enactment and implementation of the CFPB's new mortgage origination and servicing rules.

‘The Supreme Court decision on the Cordray recess appointment casts doubt that actions taken by the CFPB, via its first and only director, are valid during the time between recess appointment on Jan. 2, 2012, and Senate confirmation on July 17, 2013,’ said Michelle Garcia Gilbert, an attorney and managing partner with Tampa, Fla.-based Gilbert Garcia Group, during an interview with MortgageOrb. ‘More certain is the litigation that will follow as lawsuits attacking those actions taken during that year and a half.’

Gilbert, who also sits on the legislative and regulatory policy group of the American Legal and Financial Network, said there is a ‘high probability that challenges will be filed, and whether a court determines actions are ratified, depends upon what is challenged and what harm/damages are alleged to have been caused by these actions.’

Indeed, House Speaker John Boehner, who had alleged months prior that the president had violated the Constitution by using the recess appointments to sidestep Congress during its short break, is now threatening to bring such a lawsuit.

‘The president is not faithfully executing the laws of our country,’ Boehner told reporters on Wednesday, after announcing his intention to bring the suit, as per a Bloomberg News report. ‘On behalf of the institution, and our Constitution, standing up and fighting for this is in the best long-term interest of the Congress.’

However, during an interview with ABC News' George Stephanopoulos, the president said Boehner's threat of a suit is nothing more than a ‘stunt.’

‘The majority of the American people want to see immigration reform done,’ the president told Stephanopoulos, referring to the immigration reform bill currently stalled in the House. ‘We had a bipartisan bill through the Senate, and you're going to squawk if I try to fix some parts of it administratively that are within my authority while you are not doing anything?’

Boehner's press secretary, Michael Steel, responded, saying, ‘The American people, their elected representatives and the Supreme Court have all expressed serious concerns about the President's failure to follow the Constitution. Dismissing them with words like 'smidgen' or 'stunt' only reinforces their frustration.’

As Gilbert explained, ‘Cordray does not have a predecessor who can be said to have delegated authority to him, and the Dodd Frank Act does not permit an acting director to issue regulations.

‘He could re-adopt the regulations and enforcements made during this time, but it may not relate back to the date of the 'invalid' action,’ she said. ‘Might courts use a de facto officer (acts performed under color of official title valid even though appointment to office found to be deficient) or harmless error doctrine to validate these actions? I don't know: Criminal convictions under judges invalidly appointed have been overturned, when objection was made prior to conviction, but convictions have been upheld when objection first raised on appeal.

‘The characteristics of the CFPB single director model, along with the facts of individual challenges filed in court, will bring varying results, so we now wait and see,’ Gilbert added.

Last Thursday, immediately following the Supreme Court's vote, Jeb Hensarling, R-Texas, Chairman of the House Committee on Financial Services, who has been critical of Cordray and the CFPB, said in a statement that the Supreme Court's unanimous decision that ‘President Obama exceeded his authority when he appointed Director Cordray â�¦ reaffirms and validates our committee's decision not to hear testimony from Director Cordray on the CFPB's semi-annual report until he was validly and legally serving in his position.’

‘President Obama appointed Richard Cordray to head the CFPB at the same time and in the exact same manner as these unconstitutional NLRB appointees,’ Hensarling said. ‘By the time the Senate confirmed Cordray in July 2013, he had served as director for 18 months without legal authority. This fact calls into question the legality of the official actions he took during this time period and may represent a legal risk for the CFPB.’

Whether or not the Supreme Court will even consider Boehner's suit, however, remains in question.

A recent report in The Hill, however, says it is unlikely that Cordray's actions will be challenged, due to the fact that – unlike the NLRB officials – he had those actions re-ratified in the Federal Register following his appointment on July 17, 2013.

‘I believe that the actions I took during the period I was serving as a recess appointee were legally authorized and entirely proper,’ Corday wrote in a Federal Register notice dated Aug. 27, 2013. ‘To avoid any possible uncertainty, however, I hearby affirm and ratify any and all actions I took during that period.’

There are differing legal opinions as to whether Cordray's appointment can be successfully challenged.

‘While someone could theoretically challenge the validity and effect of the ratification, at the end of the day I very much doubt whether such a challenge would succeed,’ Alan Kaplinsky, leader of law firm Ballard Spahr LLP's consumer financial services practice, told the Wall Street Journal.

As that article points out, invalidation of CFPB's mortgage rules would be a negative for lenders because harsher rules mandated under the Dodd-Frank Act would then go into their place.

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